U.S. Negotiators Agree to End TARP to Pay for Financial Bill
June 30 (Bloomberg) -- U.S. Senator Judd Gregg, a New Hampshire Republican, discusses his opposition to the Democrats' strategy to finance the U.S. financial regulation bill. Democratic lawmakers cleared the way for final votes in the House and Senate on the U.S. financial-regulatory bill after reconvening to make a fix requested by Republican senators, who objected to charging banks and hedge funds $19 billion to help pay for the measure. Gregg speaks with Peter Cook on Bloomberg Television’s “In the Loop With Betty Liu.” (Source: Bloomberg)
Democratic lawmakers cleared the way for final votes in the House and Senate on the U.S. financial- regulatory bill after reconvening to make a fix requested by Republican senators, who objected to charging banks and hedge funds $19 billion to help pay for the measure.
House and Senate negotiators who last week merged each chamber’s version of the bill agreed yesterday to change the financing, offsetting the costs with an early end to the Troubled Asset Relief Program. They also decided to raise the level of a fund managed by the Federal Deposit Insurance Corp., used to insure bank deposits and supported through fees on the banking industry.
The action means the House and Senate are likely to pass the biggest rewrite of Wall Street rules since the 1930s. Republicans who supported an earlier version of the bill had said they would vote no if the bank fee was included.
“Because there was a reaction to it, we tried to come up with an alternative idea that would reduce those concerns and allow for us to meet the obligations of this bill,” Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat who led the talks, said yesterday at the start of the meeting of negotiators.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said the House is likely to vote today on the bill. Dodd said it was “probably doubtful” the Senate would vote this week because of the death of Senator Robert Byrd, a West Virginia Democrat. Byrd’s body will lie in state in the Senate chamber on July 1 and a memorial service will be held in Charleston, West Virginia, on July 2.
July Break
Congress has a break next week. The delay means that final passage of the bill and the signature of President Barack Obama will likely take place in the middle of July.
“The leaders certainly told me that this would be the first priority on a return from the July 4 break,” Dodd told reporters after the meeting.
The fee would have been imposed on banks with more than $50 billion in assets and hedge funds with more than $10 billion in assets. Byrd’s death left Democrats in need of all four Republicans who previously backed the measure, or three Republicans if Senator Maria Cantwell, a Washington Democrat, decided to switch her vote and support the bill. One of those Republicans, Senator Scott Brown of Massachusetts, withdrew his support yesterday, citing the fee.
“It’s a mistake not to make them pay,” Frank said of the hedge funds. “I’m puzzled that my Republican friends wanted to come to the rescue of large financial institutions over $50 billion and hedge funds over $10 billion.”
TARP
At the meeting, lawmakers agreed to end TARP by reducing its authority from $700 billion to $475 billion and banning TARP repayments from being recycled into new obligations. The change would yield a savings of $11 billion.
The $11 billion represents the amount the government estimates wouldn’t be repaid if more TARP money were spent, Frank told reporters after the meeting.
Congress approved TARP in October 2008 to safeguard the U.S. banking system against the financial crisis. The funds were extended to American International Group Inc., Citigroup Inc., Bank of America Corp., the auto industry and other financial firms. Lawmakers have said that public outrage at the bailout pushed them to strengthen the regulatory bill.
The House-Senate conferees also agreed yesterday to increase the level of funds the FDIC is required by law to hold in reserves to insure bank customer deposits. The FDIC would increase its so-called reserve ratio from 1.15 percent to 1.35 percent, or $1.35 for every $100 in deposits. Banks with less than $10 billion in assets won’t pay for the increase. The change will produce a savings of $5.7 billion in the bill, a Dodd aide said.
Bair Letter
FDIC Chairman Sheila Bair expressed support for the increase in the reserve ratio in a letter yesterday to lawmakers. She wrote that the ratio hit a low of negative 0.39 percent at the end of 2009.
“Given this experience, we believe it is clear that as the economy strengthens and the banking system heals, the reserve ratio needs to be increased,” Bair wrote.
Senator Richard Shelby, an Alabama Republican, called yesterday’s changes a “budget gimmick.”
Senator Judd Gregg, a New Hampshire Republican, offered an amendment to offset the cost with unspent stimulus funds. The amendment failed.
The regulatory package will create a consumer protection agency at the Federal Reserve, give the government more authority to unwind failing financial firms and impose new requirements on over-the-counter derivatives markets and the banks that oversee these trades. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.
To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.
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